Democracy on Hold in Benton Harbor

Michigan emergency financial management law “a violation of constitution,” say residents.

While the country watched the protests in Wisconsin spill into the State Capitol Building, Michigan Gov. Rick Snyder was passing a controversial bill that many consider a direct attack on the constitutional rights of the citizens of Michigan.

Public Acts 4-9, also called The Emergency Financial Management bill, gives already existing “Emergency Financial Managers” (EFMs) sweeping new powers, allowing them to literally suspend the entire elected bodies of municipalities they deem to be failing, and suspend collective bargaining agreements with unions for up to five years.

Immediately after the bill passed, an EFM took complete control over the city of Benton Harbor as well as Detroit's public school system. EFMs are also in power in Pontiac and Ecorse.

As many as 400 accountants, lawyers, school employees and city workers are taking classes as part of the new law, studying corporate-sector strategies for municipal application. One class, “Dealing with the Unionized Workforce,” alludes to union-busting techniques.(1)

Having studied, these teams are ready to attack the local governments of Michigan to restructure their finances. “A SWAT team is an OK way to look at this,” Michigan State University economist Eric Scorsone told Bloomberg last week of the trainees.(2)

Many Michigan residents, especially those experiencing poverty or hanging on to medium-income jobs, are outraged. Protests, lawsuits from the American Civil Liberties Union and local municipalities and calls for Governor Snyder to be recalled have unfolded with the bill's passing.

“It's a dictatorship,” Marian Kramer of the National Welfare Rights Union in Detroit says. “They are restructuring the government to protect the interests of corporations, that's what this is all about. It's not about us.”

“They have violated the constitution for the residents of Benton Harbor,” says Rev. Pinkney of Benton Harbor. “This is a constitutional issue.”

He and hundreds of others have been organizing and participating in demonstrations, lawsuits and other forms of protest against the bill.

Benton Harbor residents say that Whirlpool, the world's leading manufacturer of major home appliances, and which once employed many in Benton Harbor in manufacturing jobs, might have a role in the EFM law as well; State Rep. Al Pscholka, who introduced the bill, formerly sat on the board of a Whirlpool-funded nonprofit in Benton Harbor now behind a controversial development on the town's beach. And his former boss Rep. Fred Upton is a Whirlpool heir who owns property near the development.

Protesters listen to a speaker at a rally in Benton Harbor against EFM and Harbor Shores, on April 27, 2011. (Photo: Protect JKP)

Sucked Down the Whirlpool

Benton Harbor has long dealt with abject poverty, job loss from outsourcing and low-level corruption.

Earlier this month, former City Manager Richard Marsh settled a $192,000 lawsuit accusing other city officials of conducting fundraisers in the name of the city, but not turning over the money, and of burying a report on the city's financial situation.

The city government has been profiled for government accountability lapses in the past as well. But many residents say that appointing an EFM with no legal accountability whatsoever will only makes such problems worse.

“You as a citizen have no rights,” Marian Kramer says. “The EFM only responds to the governor and his committee, not to the people.”

Benton Harbor residents point out the state government's two-faced approach to their community. They see Whirlpool as the real criminal, overshadowing anything a city commissioner could do in a lifetime.

Whirlpool, which has its global headquarters in Benton Harbor, has long controlled the city. In 1986, at the behest of business leaders, Benton Harbor was designated as an “Enterprise Zone” to give tax exemptions to the private sector. Whirlpool quickly ate up the exemptions.(3)

At the same time, the St. Joseph-Benton Harbor area was losing over 5,000 jobs.(4) Whirlpool continued layoffs into the '90s, until in 1996 they laid off half of the workers at their Evansville, Indiana, plant.

Today, less than one-third of Whirlpool's workforce is inside the country.(5)

In 2003, as anti-police brutality riots broke out in Benton Harbor, Whirlpool was complaining that further tax incentives in a proposed energy bill were not enough to keep them from moving more jobs overseas. Apparently, the $17.40-an-hour jobs at Evansville were too pricey.

“A tax credit that creates a benefit for our refrigeration business is certainly welcome, but isn't sufficient to eliminate the need for us to consider the possibility that we move some production to Mexico,” Tom Catania, Whirlpool's vice president of government relations, threatened at the time. (6)

The threats worked and more favorable legislation passed in the 2005 Energy Policy Act. Thanks in part to the hundreds of thousands of dollars it poured into lobbying, Whirlpool has since received over $500 million dollars in tax breaks.(7)

After the new tax incentives started, Whirlpool announced it would soon be moving its Evansville and Fort Smith, Indiana, plants to Mexico, laying off another 1,200 workers(8) and leaving up to 1,500 more out of jobs through the overall “ripple effect.”(9)

This year, the job-exporting mega-manufacturer will receive multiple government handouts once again, including over $300 million in energy tax credits from the federal government – which will account for one-third of its annual profit(10) – a $19.3 million grant from the Department of Energy, $19 million in tax incentives from the Michigan Economic Growth Authority(11) and almost $1 million from the State of Ohio.(12) The company has also received over $500 million in tax credits in the last six years from the Brazilian government.(13)

And, like General Electric, Whirlpool's effective tax rate for 2010 will be zero percent.(14)

Subsidized by these tax incentives and government handouts, Whirlpool last week announced a three-percent rise in first-quarter profits, up from $164 million to $169 million.(15) Whirlpool's sales last year topped $17 billion.

Residents See Whirlpool Role in EFM Law

Whirlpool has often used the “job-creation” myth as a mean of getting government handouts and calming Benton Harbor residents. But, according to the Detroit Economic Club, Whirlpool's Michigan workforce is almost 100 percent white collar. Benton Harbor is a blue-collar town. (16)

Whirlpool CEO Jeff Fettig exposed this recently, describing the new Whirlpool headquarters project for which the company has been promised $19 million in tax breaks from the state. “We have historical reasons [for staying in Benton Harbor], as well as having 4,000 good people here,” he told a crowd in March. “All that could change that equation for us is whether in the future we can continue to attract talent to the state.”(17)

A rally in Benton Harbor, Michigan is held against EFM and Harbor Shores, on April 27, 2011. (Photo: Protect JKP)

So, the “knowledge economy” jobs for which Michigan is paying are being marketed to people outside of Michigan.

To keep a clean public image, Whirlpool funds and largely controls a nonprofit in Benton Harbor called the Cornerstone Alliance, which has a revolving door with Whirlpool and the Whirlpool Foundation for its staff members and employees.

Cornerstone has long served the interests of Whirlpool in Benton Harbor, creating a façade through which the company can pass off its actions as being in the interests of “the community.”

“They're an arm of Whirlpool,” says Carol Drake of Friends of Jean Klock Park.

Carol has been fighting for the preservation of the historic park against a consortium of developers led by Whirlpool. Her organization has tracked the evolution of developers' plans to seize the public park, which she says have been in the works for decades.

Their current project is called Harbor Shores, a $500 million golf resort to include luxury homes, a water park, high-end condominiums and other similar upscale amenities.

Both Whirlpool and Cornerstone are partners in this development, which will span Benton Harbor's public beach. Jean Klock Park was deeded to the people of Benton Harbor almost 100 years ago, but the central area of it was turned over to developers in 2008.

While the city government of Benton Harbor was complicit in this deal, newly elected commissioners have officially withdrawn the city's support. “I don't think any good government would show their support when we've given much more than any other entity,” Benton Harbor City Commissioner Duane L. Seats II said.(18)

But those commissioners no longer have any power due to Joe Harris' recent suspension of all local government activity through the Emergency Management law.

This has led some to believe that the EFM bill is being used here to ensure that the Harbor Shores project continues.

“The true intent of the Emergency Management law here is so that the Whirlpool Corporation can complete what they started long ago,” Carol says, “the takeover of the park and of the City of Benton Harbor.”

Residents point out that Pscholka, who introduced the bill, was vice president of the Cornerstone Alliance's Chamber of Commerce from 1996 to 2004.

“To say that there's no connection between Harbor Shores and this legislation is absurd,” says Julie Weiss. “They are the ones who need to explain themselves.”

Julie has been active for many years in the fight to protect the park. Her organization, Protect Jean Klock Park, was founded in 2008 to support federal litigation against the National Park Service, The Army Corps of Engineers and the City of Benton Harbor.

“Pscholka was also a staffer for U.S. Congressman Fred Upton (R-MI),” Julie says. Representative Upton owns over $1 million in Whirlpool stock and pushed hard for the privatization of Jean Klock Park. His grandfather was a co-founder of Whirlpool.

For its part, Whirlpool has donated former factory land appraised at $20 million in anticipation of development at Harbor and has offered over $15 million in economic assistance and loans.

Meanwhile, the state of Michigan has offered up to $120 million in tax breaks for the project.(19)

The Harbor Shores plan is being run through a nonprofit called Harbor Shores Community Redevelopment, Inc., a collaboration among Whirlpool, Cornerstone and a new formation called The Consortium for Community Development.

The company in charge of developing Harbor Shores, Evergreen Development, was formed in 2005 in anticipation of the project. Evergreen's Chief Financial Officer Jeffery Gilbertson is the former senior director of Financial Operations, International at General Growth Properties (GGP), one of the largest mall owners in the United States.

While Gilbertson was joining up with Evergreen in 2008, his former employer, after amassing $27 billion in debt, was filing what has been called the largest real estate bankruptcy in US history.(20)

Meanwhile, workers at Baltimore's Inner Harbor were announcing a major campaign against GGP, which parallels the fight in Benton Harbor in many ways. A new report released this week shines light on these issues and perhaps puts the Harbor Shores project in Benton Harbor under a new light.

“The Inner Harbor,” the report reads, “has become a glaring example of poverty zone development, with low-quality jobs and abusive wages and conditions. As in other poverty zone developments, the private developers – General Growth Properties and Cordish Companies – and their investors insisted on secure profits through access to public subsidies and advantageous leases with the vendors who run the businesses in the development.”

That might sound all too familiar to the residents of Benton Harbor.

Development vs. Fair Development

It was recently announced that the 2012 and 2014 Senior PGA Tournament, brought to you by Whirlpool's own KitchenAid, would be played at Harbor Shores.

“The Senior PGA, KitchenAid brand and Whirlpool Corporation's alliance presents an opportunity to show how business and golf can help to strengthen and transform lives and communities,” said Jeff Noel, corporate vice president of Whirlpool Corporation.(21)

Instead of hiring locals whose taxes have helped fund the golf course's development to work the tournament, the PGA is asking for 1,500 volunteers.(22)

This is a bit ironic since one of the big promises with the Harbor Shores development is that it will, according to their numbers, create 4,739 jobs. This number has been used in both the media and in the community as the great defense of the project.

The figure was first announced in an impact study conducted by students from the Kelley MBA Sports & Entertainment Academy with assistance from the W.E. Upjohn Institute for Employment Research.

But there's a catch. When the W.E. Upjohn Institute conducted their own in-depth study afterwards, they found that the previous study's numbers were skewed. The authors had computed the employment numbers as “job years,” which, according to the new report, “is not a reporting technique generally used by professional economists.”

“In essence, a 'job year' is one year of employment,” the report states. “By this measure, a solitary individual who works at the same job for 10 years would be reported as 10 'job years.'” The Upjohn Institute reports all employment impacts in terms of conventional jobs or employment levels, which is compatible with standard, publicly-reported employment statistics.”

It turns out the numbers were off by as much as 3,123. The second report puts the total employment count during the highest employment year (which in the report is 2012) at 1,616 jobs. That includes projected tourism employment and development construction.

These numbers also don't account for how long those jobs will last, how much they will pay and how much skill they will involve. What we do know from the reports is that the majority of the jobs created will be in construction, meaning they will only last a few years.

Again, the Baltimore report describing working conditions at the Inner Harbor gives insight into what these kinds of developments mean when they talk about jobs: “The vendors, many but not all extremely powerful and wealthy companies themselves, maximize their profits by minimizing their unfixed costs (in particular labor), which creates a downward pressure on wages and working conditions for the vendors' employees who work at the very bottom rung of the economic ladder.”

“In short,” it continues, “the development's profits do not trickle down, but are instead squeezed upward from the workers.”

The promise of low-paying jobs and temporary employment will not lift Benton Harbor's current residents out of poverty. Residents say they have been hearing similar things for years, but little has changed.

“They aren't going to bring any jobs that are going to sustain a family,” Carol says.

Though there have been some improvements since the harsh years of the late 1970s, unemployment rates in Benton Harbor are still far above the national average (15 percent today with unofficial claims as high as 70 percent) and almost half of the city's residents are now living at or below the poverty line. While the unemployment rate is lower than it was when the 1986 tax incentives started, almost half of the city's residents have moved out since then, which helped bring that percentage down.

“They had to run the city down as far as they possibly could so [Whirlpool] would qualify for all the state money,” Carol suggests, “so they could create this development.”

One typical pattern with this type of development is that, after completion, property values rise and renters must move on to cheaper areas. For instance, while Fred Upton and Whirlpool CEO Jeff Fettig will see their property values rise in St. Joseph, the 60 percent of Benton Harbor residents who rent their houses will not.(23)

If poor residents are priced out and forced to other places, the result on paper will be that the overall income of Benton Harbor rose as a result of the Harbor Shores development.

“They want us to leave here as soon as possible,” says Reverend Pinkney.

As the Baltimore model has shown, developers in positions like Harbor Shores often masquerade as an economic engine for a city while leaching public money to make big profits.

“Baltimore's Inner Harbor is a sad example of what broken promises for economic prosperity and jobs can do to a community,” says Ashley Hufnagel, a leadership organizer with the United Workers.

“It is workers and the community who end up paying the price for poverty-zone developments through poverty wages, lack of healthcare, barriers to education and more. That's why harbor workers in Baltimore are holding the developers accountable and calling for Fair Development, an alternative model that respects human rights, maximizes public benefits and is sustainable.”

A demonstration has been called for in Benton Harbor on June 18, the anniversary of the 2003 riots. Another larger demonstration will take place during the 2012 PGA Championships at Harbor Shores.

Footnotes:

1. See here.
2. See here.
3. See here.
4. See here.
5. See here.
6. “Good Jobs First, Layoffs at Whirlpool: Costs to the Evansville Metro Area and Indiana Taxpayers.” Commissioned by IUE-CWA Local 808 and AFL-CIO Industrial Union Council Washington, DC. April 2010.
7. See here.
8. See here.
9. “Good Jobs First, Layoffs at Whirlpool: Costs to the Evansville Metro Area and Indiana Taxpayers.” Commissioned by IUE-CWA Local 808 and AFL-CIO Industrial Union Council Washington, DC. April 2010.
10. See here.
11. See here.
12. See here.
13. See here.
14. See here.
15. See here.
16. See here.
17. See here.
18. See here.
19. See here.
20. See here.
21. See here.
22. See here.
23. See here.